In Q2 2024, Tencent achieved a revenue of 161.1 billion yuan (yoy+8%, qoq+1%), operating profit of 50.7 billion yuan (yoy+26%, qoq-3.5%), and a net profit attributable to equity holders of the company of 47.6 billion yuan (yoy+82%, qoq+14%).
According to the research report released by Sealand Securities, Tencent Holdings (00700) 'buy' rating is maintained, considering the steady growth of the company's game business, continuous advertising growth exceeding expectations, and significant year-on-year improvement in profit margin. The profit forecast is raised. It is estimated that the company's revenue from FY2024 to FY2026 will be 665.6/727.7/788.6 billion yuan respectively, and the non-IFRS attributable net profit will be 223.8/253.9/282.4 billion yuan respectively. The target price is 466 Hong Kong dollars.
The main views of Zhonghai Securities are as follows:
The company announced the financial report for Q2 of 2024 on August 14, 2024.
In Q2 2024, Tencent achieved a revenue of 161.1 billion yuan (yoy+8%, qoq+1%), operating profit of 50.7 billion yuan (yoy+26%, qoq-3.5%), net profit attributable to equity holders of the company of 47.6 billion yuan (yoy+82%, qoq+14%), non-IFRS operating profit of 58.4 billion yuan (yoy+27%, qoq-0.3%), and non-IFRS attributable net profit of 57.3 billion yuan (yoy+53%, qoq+14%).
1. Operating data: In Q2 2024, the total user time for video accounts increased significantly year-on-year, the total user time for mini programs increased by more than 20% year-on-year, and the number of Tencent Video and Tencent Music paid members both achieved double-digit year-on-year growth.
2. Overall performance: The core business maintained steady growth. In Q2 2024, the company's overall gross margin was significantly optimized year-on-year and also improved on a qoq basis (yoy+5.8pct, qoq+0.7pct); the cost rate remained stable year-on-year. Non-IFRS attributable net profit increased by a strong 53% year-on-year to 57.3 billion yuan, greatly exceeding market expectations.
3. Value-added services: In Q2 2024, game revenue grew steadily. The domestic/overseas markets grew by 9%/9% respectively. "Honor of Kings" and "Peace Elite" resumed growth, and the new game "DNF" mobile game performed strongly. The overseas revenue growth rate was significantly higher than the growth rate of revenue, driving deferred revenue to a new high, which is expected to be gradually recognized later. Tencent Video released several popular self-made TV dramas and animation series, driving the year-on-year growth of Tencent Video paid members by 13% to 0.117 billion; TME Music's paid members increased by 18% year-on-year to 0.117 billion; and small game revenue increased by more than 30% year-on-year.
4. Online advertising business: In Q2 2024, the advertising business increased by 19% year-on-year. The growth of WeChat video accounts, long videos, and AI-driven advertising technology platforms jointly drove the strong growth of the advertising business, and the gross profit margin continued to increase significantly year-on-year.
5. Financial technology and enterprise services: In Q2 2024, revenue increased by 4% year-on-year, and the macro environment affected the slowdown of payment business growth; cloud business grew steadily, AI assistant Yuanbao went online, and the AI search system with a unique content ecosystem has advantages; the technical service fee of the video accounts merchants continued to increase, and the e-commerce transaction ecology continued to improve.
6. Continuously strengthening shareholder returns to support stock prices: The company expects to repurchase more than 100 billion Hong Kong dollars in 2024. According to wind data, Tencent has repurchased 33.8 billion/48.4 billion/62.4 billion Hong Kong dollars from 2022 to 2024 so far (as of August 17). The company expects the scale of repurchase to increase to more than 100 billion Hong Kong dollars this year, coupled with cash dividends. It is expected to provide strong support for the stock price.
Risk warning
Risks include: slowing growth in active users, delay in new game approvals, video content regulation risks, rapidly rising content costs risks, rapidly increasing channel costs risks, competition risks, anti-monopoly risks, financial policy change risks, investment risks, valuation adjustment risks, and risks associated with slower than expected expansion of video accounts advertising and WeChat mini games.